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CONTRACT CLAUSES AND SOLICITATION PROVISIONS

knowledge and belief, the cost and pricing data submitted under (a) above is accurate, complete, and current as of the date of agreement on the negotiated price of the subcontract or subcontract change or modification.

(c) The Contractor shall insert the substance of this clause including this paragraph (c) in each subcontract hereunder which exceeds $100,000 when entered into except where the price thereof is based on adequate price competition, established catalog or market prices of commercial items sold in substantial quantities to the general public, or prices set by law or regulation. In each such excepted subcontract hereunder in excess of $100,000, the Contractor shall insert the substance of the following clause: SUBCONTRACTOR COST OR PRICING DATA-PRICE ADJUSTMENTS

(a) Paragraphs (b) and (c) of this clause shall become operative only with respect to any modification made pursuant to one or more provisions of this contract which involves aggregate increases and/or decreases in costs plus applicable profits expected to exceed $100,000. The requirements of this clause shall be limited to such contract modifications.

(b) The Contractor shall require subcontractors hereunder to submit, actually or by specific identification in writing, cost or pricing data under the following circumstances: (i) prior to award of any subcontract, the amount of which is expected to exceed $100,000 when entered into; (ii) prior to the pricing of any subcontract modification which involves aggregate increases and/or decreases in costs plus applicable profits expected to exceed $100,000; except where the price is based on adequate price competition, established catalog or market prices of commercial items sold in substantial quantities to the general public, or prices set by law or regulation.

(c) The Contractor shall require subcontractors to certify, in substantially the same form as that used in the certificate by the Prime Contractor to the Government, that to the best of their knowledge and belief the cost and pricing data submitted under (b) above is accurate, complete, and current as of the date of agreement on the negotiated price of the subcontract or subcontract change or modification.

(d) The Contractor shall insert the substance of this clause including this paragraph (d) in each subcontract hereunder which exceeds $100,000 when entered into.

(End of clause)

(b) Insert the following clause in all contracts, both formally advertised and negotiated, which exceed $100,000 other than those described in (a) above:

SUBCONTRACTOR COST OR PRICING DATA-PRICE ADJUSTMENTS (1970 JAN)

(a) Paragraphs (b) and (c) of this clause shall become operative only with respect to any modification made pursuant to one or more provisions of this contract which involves aggregate increases and/or decreases in costs plus applicable profits expected to exceed $100,000. The requirements of this clause shall be limited to such modifications.

(b) The Contractor shall require subcontractors hereunder to submit cost or pricing data under the following circumstances: (i) prior to the award of any subcontract the amount of which is expected to exceed $100,000 when entered into; (ii) prior to the pricing of any subcontract modification which involves aggregate increases and/or decreases in costs plus applicable profits expected to exceed $100,000; except where the price is based on adequate price competition, established catalog or market prices of commercial items sold in substantial quantities to the general public, or prices set by law or regulation

(c) The Contractor shall require subcontractors to certify that to the best of their knowledge and belief the cost and pricing data submitted under (b) above is accurate, complete, and current as of the date of agreement on the negotiated price of the subcontract or subcontract change or modification

(d) The Contractor shall insert the substance of this clause including this paragraph (d) in each subcontract which exceeds $100,000.

(End of clause)

7-104.42

ARMED SERVICES PROCUREMENT REGULATION

7:94

CONTRACT CLAUSES AND SOLICITATION PROVISIONS (c) The requirement for inclusion of the above clauses in contracts with foreign governments or agencies thereof may be waived in exceptional cases by the Head of a Procuring Activity, stating in writing his reasons for such determination.

7-104.43 Reserved.
7-104.44 Value Engineering (VE).
(a) Value Engineering Incentive Clause.

(1) In accordance with 1-1702.1 and 1–1707, insert the following clause in firm fixed-price contracts, fixed-price contracts with economic price adjustment or fixed-price contracts providing for prospective price redetermination:

VALUE ENGINEERING INCENTIVE (1977 SEP)

(a) Application. This clause applies to a contractor developed and documented Value Engineering Change Proposal (VECP) which:

(i) requires a change to this contract to implement the VECP, and
(ii) reduces the overall costs to the cognizant Military Department without impairing es-

sential functions or characteristics, provided that it is not based:
(A) solely on a change in deliverable end item quantities; or
(B) a change in R&D end item or test quantities due solely to results of previous

testing under this contract; or

(C) solely on a change to the contract type. (b) Documentation. As a minimum, the following information shall be submitted by the Contractor with each VECP:

(i) a description of the difference between the existing contract requirement and the

proposed change, and the comparative advantages and disadvantages of each, justification when a function or characteristic of an item is being altered, and the effect of

the change on the performance of the end item; (ii) an analysis and itemization of the requirements of the contract which must be

changed if the VECP is accepted and a recommendation as to how to make each

such change (1.8., a suggested specification revision); (ii) a separate detailed cost estimate for both the existing contract requirement and the

proposed change to provide an estimate of the reduction in costs, if any, that will result from acceptance of the VECP, taking into account the costs of development and implementation by the Contractor (including any amount attributable to subcon

tracts in accordance with paragraph (h) below); (iv) a prediction of any effects the proposed change would have on collateral costs to the

Military Department such as Government-furnished property costs, costs of related

items, and costs of maintenance and operation; (v) a statement of the time by which a contract modification accepting the VECP must

be issued so as to obtain the maximum cost reduction, noting any effect on the con

tract completion time or delivery schedule; and (vi) identification of any previous submission of the VECP, including the dates submitted,

the agencies involved, the numbers of the Government contracts involved, and the

previous actions by the Government, if known. (c) Submission. VECPs shall be submitted to the Procuring Contracting Officer(PCO). When the contract is administered by other than the purchasing office, a copy of the VECP shall be sub mitted simultaneously to the Administrative Contracting Officer (ACO). VECPs shall be processed expeditiously; however, the Government shall not be liable for any delay in acting upon any VECP submitted pursuant to this clause. If the evaluation period is likely to exceed forty-five (45) calendar days, the PCO shall promptly notify the Contractor of the estimated decision date and provide the reasons for the additional time required. The Contractor has the right to withdraw, in whole or in part, any VECP not accepted by the Government within the period specified in the VECP.

(d) Acceptance. The Conracting Officer may accept, in whole or in part, by contract modification either before or within a reasonable time after performance has been completed under this contract, any VECP submitted pursuant to this clause. Until a contract modification applies a VECP to this contract, the Contractor shall remain obligated to perform in accordance with the

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ARMED SERVICES PROCUREMENT REGULATION

CONTRACT CLAUSES AND SOLICITATION PROVISIONS

terms of the existing contract. Contract modifications made pursuant to this clause will so state. The decision of the Contracting Officer as to the acceptance of any VECP under this contract (including the decision as to which clause is applicable to the proposal if this contract contains both a “Value Engineering Incentive" and a “Value Engineering Program Requirement" clause) shall be final and shall not be subject to the “Disputes" clause of this contract.

(e) Sharing. If a VECP submitted by the Contractor pursuant to this clause is accepted, the Contractor shall share in savings realized by the Government in accordance with the following provisions: (1) Instant Contract. (i) Definitions: (A) Instant contract savings to the Contractor (ICS) is the unit cost reduction times

the number of units affected in the instant contract. The proposed unit cost reduction includes estimated allowable contractor development and implementation costs (CC). The Contractor's development and implementation costs include any subcontractor development and implementation costs and any subcontractor incentive payments (see (h) below). For purposes of this clause, contractor development costs are those costs incurred after the Contractor has

identified a specific VE project and prior to acceptance by the Government. (B) Government Costs (GC) are those DoD costs which directly result from

development and implementation of the VECP, such as test and evaluation of
the VECP, and any increased costs in DoD operations, maintenance, and logistic

support.
(ii) Calculations and Actions:

(A) Calculate GC and ICS.
(B) If ICS exceeds GC, calculate fifty percent (50%) (Government share) of the sum

of ICS and GC, i.e., (.5 (ICS plus GC)), unless this is a VE Program Require-
ment Change (VEPRC), in which case calculate (.75 ICS plus .25 GC). In either

case, subtract the result from the contract price. (C) If GC exceeds ICS, but acceptance of the VECP is still desirable due to concur

rent or future savings, reduce the instant contract price by the amount of ICS and offset the amount by which GC exceeds ICS against concurrent or future

savings. (D) If the Contractor's cost of developing and implementing the VECP would result

in an increase in the instant contract price, but the VECP is still desirable due to concurrent or future savings, equitably adjust the instant contract price in accordance with the “Changes": clause. In addition, offset the increase in the in

stant contract price and any GC against concurrent or future contract savings.

(E) See (e)(3)(ii) for those actions to be taken when a future contract is expected. (2) Concurrent Contracts. (i) If the VECP accepted under this contract is also used on concurrent contracts of the

purchasing office for essentially the same items, the Contractor shall be paid a share

of any savings as calculated in (ü) below. (ii) Calculations: (A) Determine the reduction in the price of each concurrent contract(s) as a result

of incorporating the VECP. (B) Subtract from the total amount in (A) any government costs (GC) not yet offset

(if GC was greater than ICS) in (e)(1)(ii)(C) or (D) above, and any increase in the instant contract price, i.e., if ICS was negative in (e)(1)(ii)(D). If the resulting number is positive, multiply it by fifty percent (50%) (25% if this is a

VEPRC). Add this amount to the instant contract price. (3) Future Contracts. (i) Definition. The term unit cost reduction for future contract sharing shall be the unit

cost reduction under this instant contract without deducting any cost of development

or implementation. (ii) If the VECP accepted under this contract is used on future purchases of essentially

the same item by the purchasing office, or its successor, the Contractor shall share in the savings on all affected end items scheduled for delivery not later than three (3)

I

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ARMED SERVICES PROCUREMENT REGULATION

CONTRACT CLAUSES AND SOLICITATION PROVISIONS

years after acceptance of the first item incorporating the VECP, or until the
originally scheduled delivery date of the last affected end item under the inst
tract, whichever is later. When sharing on future contracts is expected, the Contrac-
tor shall be responsible for the following:
(A) Maintaining records adequate to support identification of the first delivered unit

to which the VECP applies. These records are considered an integral part of
contract documentation and shall be maintained for a period of three years after

final payment on the contract under which the VECP was accepted. (B) Annotating the DD Form 250, Material Inspection and Receiving Report, which applies to the initial unit covered by the VECP with the following statement:

“This is the initial unit delivered which incorporates VECP No. ........., Con

tract Modification No. .........., dated .........." (iii) Calculations. At the time each eligible future contract is awarded: (A) Determine the number of units scheduled to be delivered prior to expiration of

the contractor sharing period determined in (ü) above. Multiply this by the unit

cost reduction as defined in (e)(3)(i). (B) Subtract from the total amount in (A) any Government costs or instant contract

increases not yet offset in (e)(1)(ii)(C) or (D), or in (e)(2)(ii)(B), or in other contracts awarded since acceptance of the VECP. If the resulting number is positive, multiply it by fifty percent (50%) (25% if this is a VEPRC) and add the

result to the instant contract price. (4) Collateral Savings. If an accepted VECP results in a measurable net reduction in the cognizant Military Department's overall documentable projected costs of maintenance, operation, logistic support or Government-furnished property, which exceeds any increase in costs attributable to incorporation of such VECP, including acquisition costs, the contract shall be increased by twenty percent (20%) of the projected net reduction in ascertainable collateral costs (i.e., savings determined to be realized during an average year of use of the item in which the change is incorporated) and, if applicable, of the actual savings accruing from a change or reduction of Goverment-furnished property under the instant contract. However, such increase representing the Contractor's share of collateral savings shall, in no event exceed the price of this contract or $100,000, whichever is greater. The determination of the amount of collateral savings, if any, will be made solely by the Government and shall not be subject to the “Disputes" clause of this contract. In all cases, degradation of performance, service life, or capability shall be a consideration in the determination of actual savings to the Military Department.

(f) Payment. The Contractor's concurrent and future contract shares should be paid upon modification of concurrent contracts or future contract award, or within six (6) months thereafter. However, any such payments are subject to the condition that to the extent the Government does not receive delivery of and accept all items on which the share is paid, the contractor shall reimburse the Government the proportionate share of the payments. If this clause is modified to provide for lump sum payments, such payments shall be made upon modification of the instant contract.

(8) Operation and Maintenance Contracts. If this is a contract for overhaul or maintenance (including repair, alteration, modification or modernization), the Contractor will be paid a share of future contract savings realized by the Government only on overhaul and maintenance of the designated items accomplished by purchase, under contract, by the designated purchasing office. Only collateral savings will be paid on application of accepted VECPs to overhaul and maintenance of items within Government resources.

(h) Subcontracts. The Contractor shall include appropriate VE arrangements in any subcontract of $100,000 or greater, and may include such arrangements in contracts of lesser value. To compute any adjustment in the contract price under paragraph (e) (1) above, the Contractor's cost of development and implementation of a VECP which is accepted under this contract shall include any development and implementation costs of a subcontractor and any VE incentive payments to a subcontractor, which clearly pertain to such VECP. However, no such payment or accrual to a subcontractor will be permitted, either as a part of the contractor's development or implementation costs or otherwise, to reduce the Government's share on collateral savings or additional purchases as contemplated by paragraphs (e)(2), (3) or (4) of this clause.

7-104.44

ARMED SERVICES PROCUREMENT REGULATION

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(i) Data. The Contractor may restrict the Government's right to use any sheet of a VECP or of the supporting data, submitted pursuant to this clause, in accordance with the terms of following legend if it is marked on such sheet:

"This data furnished pursuant to the Value Engineering clause of contract ...
shall not be disclosed outside the Government, or duplicated, used, or disclosed, in
whole or in part, for any purpose other than to evaluate a VECP submitted under
said clause. This restriction does not limit the Government's right to use information
contained in this data if it is or has been obtained, or is otherwise available, from the

Contractor or from another source, without limitations." In the event of acceptance of a VECP, the Contractor hereby grants to the Government unlimited rights, as defined in the clause of ASPR 7-104.9(a), in the VECP and supporting data, except that, with respect to data which qualifies as and is submitted as limited rights technical data in accordance with the clause of ASPR 7-104.9(a), the Government shall have the rights specified in the contract modification referred to in paragraph (d) hereof and the data shall be appropriately marked. (j) Miscellaneous Provisions.

(1) For purposes of sharing under paragraph (e)(1) above, the term “instant contract" shall not include any modifications of the instant contract, executed after acceptance of the particular VECP, by which the Government increases the quantity of any item or adds any item, nor shall it include any extension of the instant contract through exercise of an option provided under this contract after acceptance of the VECP. Such modifications and extensions shall be considered "future contracts" within the provisions of paragraph (e)(3) of this clause.

(2) If this is an indefinite delivery type contract, the term “instant contract" for purposes of sharing under paragraph (e)(1) above shall include only those orders actually placed by the Government up to the time the particular VECP is accepted. All orders placed subsequent to the acceptance of the particular VECP shall be considered "future contracts" within the provisions of paragraph (e)(3) of this clause.

(3) If this clause is included in a basic ordering agreement, the term “instant contract", for purposes of sharing under paragraph (c)(1) above, shall be the order under which the particular VECP is approved. Other orders under the same agreement shall be considered either “concurrent contracts" (if awarded prior to acceptance of the VECP) or 'future contracts (if awarded after acceptance of the VECP), within the provisions of paragraph (e)(2) or (e)(3) of this clause, respectively.

(4) If this clause is included in a multi-year contract, the term “instant contract" for the purpose of sharing under paragraph (e)(1) above, shall be the funded contract at the time the VECP is approved, and items purchased under subsequent funding under this contract shall be treated under the future contract VE sharing provisions in paragraph (e)(3) of this clause. The sharing period shall be the entire life of the multi-year contract, or three (3) years after delivery of the first item incorporating the VECP, whichever is longer.

(5) If this clause is included in a fixed-price contract providing for prospective price redetermination, the term “instant contract" for purposes of sharing under paragraph (e)(1)) above shall be that period for which firm prices have been established. The remaining periods under this contract shall be treated under the future contract VE sharing provisions in paragraph (e)(3) of this clause.

(6) The Contracting Officer may require the Contractor to provide written notification prior to undertaking significant cxpenditures for VECP effort.

(k) Relation to Orher Incentives. Those benefits of an approved VECP which are not rewardable under performance, design to cost (production unit cost, operating and support (O&S) costs, reliability and maintainability (R&M)) or similar incentives of the contract shall be rewarded under subparagh (e) of this clause. The targets of such incentives affected by the VECP shall not be adjusted because of the acceptance of the VECP. If the contract does not provide such incentives to better specified targets, the VE sharing shall apply only to the amount of achievement better than target.

(End of clause) (a)(2) In fixed-price incentive (firm target) contracts, substitute the following “Sharing" provision for paragraph (e) of the clause in (1) above:

7-104.44

ARMED SERVICES PROCUREMENT REGULATION

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